Surprise uptick in Spanish core inflation in June

Spanish inflation held steady at 2.2% in June, according to preliminary data released this morning by Spain’s national statistics office, INE, while core inflation increased from 2% to 2.2%. This outcome contrasts with expectations for a further normalisation toward the ECB’s target. On a monthly basis, inflation rose by 0.6%. The European harmonised index of consumer prices (HICP) mirrored the national figures.

The inflation dynamics were primarily driven by a rebound in fuel prices, which had declined in June 2024, and to a lesser extent by rising food prices. Unprocessed food prices already surged by 7% year-on-year in May, reflecting the impact of rising global food commodity prices.

Despite the recent uptick in inflation, broader disinflationary forces remain in play. The euro’s appreciation is contributing to disinflation, oil prices continue to exert downward pressure, and recent Purchasing Managers’ Index (PMI) data show the sharpest decline in manufacturing output prices since September 2024. In the services sector, which accounts for roughly half of overall inflation, PMI panellists reported a slower pace of price increases, citing intensified competitive pressures.

The EUR/USD approaching 1.20 already hints at it, but the euro has appreciated more broadly over the year. The nominal effective exchange rate (NEER) for the euro area rose by 3.6% year-on-year, with 4.3% of that increase occurring since the start of the year. For Spain, the appreciation was more modest at 2% year-on-year. According to ECB research, such exchange rate movements tend to significantly reduce import prices, though the pass-through to consumer prices is typically limited.

The impact of oil prices, however, is more substantial (see Figure below). Since the beginning of 2025, euro-denominated oil prices have fallen by 20%, and by 28% year-on-year, due to both declining global oil prices and the strengthening euro. While estimates of the pass-through vary, this could lower inflation by 0.2 to 0.4 percentage points over the year. In May, the energy component of inflation already contributed -0.25 percentage points.

That said, inflationary risks have not completely disappeared. The recent Israel-Iran conflict highlights the ongoing geopolitical vulnerabilities in energy markets. Although the resulting oil price spike was short-lived, any escalation – particularly one that disrupts the Strait of Hormuz – could quickly reverse the current downward pressure on energy prices. We also expect a temporary uptick in inflation during the summer tourist season.

Overall, we maintain our baseline view that the broader disinflationary trend will prevail, supporting our projection for headline inflation to ease to an annual average of 2.3% in 2025.